Quadplex or Small to Medium Apartment Complex?

Question

Hello fellow BP investors, my wife and I have a decision we have been going back and forth on. We know we want to invest in real estate, eventually getting into 100+ unit apartments, however we aren't sure how to get started. We would like to buy an apartment around 20 units, however we do know financing will be difficult as we will need to do seller financing, bring in outside investors, or use some other means of creative financing. All of those will be tough since we have no experience. The other option is to purchase a quadplex using the VA loan and live in one of the units (we are both active duty military in san diego). Either way we will be hiring a property manager. We have also considered a smaller, 6 to 10 unit apartment complex. We both have a lot to learn and welcome any suggestions! Thank you in advance.

Devan Mcclish · Answer

@Jacob Thompson buy the quadplex first. Make your mistakes on a smaller scale before you start borrowing other people's money and making mistakes on a bigger scale. It is a great way to start in the multifamily space. Using your VA loan, it will be easier to obtain financing and start to build a track record of doing multifamily deals. I am not saying you cannot get into the larger deals right away. Do you have any available cash to put "skin" in the game? Do you know how to raise money and syndicate a deal? These are things you need to learn before you go into that space unless you can JV with someone and put up your own money to do it

Russell Brazil · Answer

@Jacob Thompson I think I would also buy the quadplex using a VA loan first.  The VA loan is one of my favorite mortgage products. I wish I had access to it. You can get into the property for close to zero.  In fact I know an indvidual, Gabriel G.'s website and blog entries.  You can really learn a lot about apartment building investing from him.

Gabriel G. · Answer

@Jacob Thompson as @Russell Brazil pointed out the VA loan is great to purchase your first investment. However, keep in mind that there are some differences when you use the VA loan like for example the funding fee. This is a fee that gets charged kinda of like a down payment for using the VA loan. My advice if you want to get paid for purchasing the property is this:

1) Roll the funding fee into the loan (yes you can do that but just make sure that the numbers still make sense)

2) Negotiate the contract so that the sellers pay for most (if not all) of the closing costs.

3) Talk to your loan officer and schedule a closing date that extends your first mortgage payment out as far our as possible. I talked to my loan officer and I realized that if I closed on the 5th of December vice the 1st (which is what we had originally planned) my payments wouldn't have been until two months late vice one.

4) Lastly, if some of the units are occupied (which hopefully they are so that the property is already generating income) then on closing day the sellers will have owed you a prorated amount for that months rent (unless you decided to close on the 30th or 31st of that month) and you will get another month or so of rent without having to pay a mortgage.

And that my friend is one of the many ways to get paid on closing. I was listening to one of the podcasts and this guy managed to do the same thing with combining Subject to's and Seller financing (Don't know exact details but there are many ways to get money for buying a house).

As far as the property management, I think that doing the property management yourself (at least only in the beginning) is really good so that you get some hands on experience and then eventually be able to know what to look for in a property manager.

Anyhow, best of luck and thank you for your service!

Jake Thompson · Answer

Thank you for the input, I would like to get started with bigger deals immediately, however I understand it will be better to do a less complex deal and get some experience. I do have some money to put down and am willing to pay back investors first, however I do not have enough for a full down payment on a 20 unit complex. I appreciate your advice.

Jake Thompson · Answer

@Russell Brazil Thank you so much for the advice, my wife and I have agreed to purchase a quadplex first. It might not be as exciting as getting a large apartment, but we know it's a good way to get our feet wet and figure out if this is really something we want to do.

@Karl Kyler My wife and I have zero experience with being a landlord, and barely have time to look for properties, let alone manage them. That is the reason we want to hire a property manager. Why do you think we should try to manage ourselves? Thanks for the advice!

Karl Kyler · Answer

Jacob,

Devan is on point.  I understand how you may want to hire a property manager as well but if it is possible I would suggest to try and manage it yourself.  I can help align you with a handyman/contractor that could fix/resolve any problems you  may not be able to.

Karl

Quadplex or Small to Medium Apartment Complex?

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